Sunday, October 17, 2010

Boettke on the laureates

Peter Boettke has another good post up on the search and matching literature. There are some reasonable sentiments here, he connects the literature to Alchian which I think is fine. It's worth a read. Sometimes, though, I get the impression that a lot of Boettke's insights are based on the narrative that left-leaning economists magically forget simple things like governments screw things up or that markets are efficient. He dreams up these narratives and then builds a case for the importance of the Austrian school and public choice theory on the grounds that they're essential to bring ideas of market efficiency or the risks introduced by governments back to mainstream economics.

I think there's something fundamentally wrong with this sort of mission statement for the Austrian school or public choice theory. The fact is, left-leaning and mainstream economists haven't abandoned the idea of market efficiency*. They never abandoned the idea that politicians don't know how to run an economy. These insights were never lost. If you try to build an Austrian revival on preaching these points, you're not going to be very well received because the reaction will be "(1.) we know that, so (2.) you seem to be trying to feed us libertarianism by clothing it in points of agreement that we already know."

That's not to say the Austrian school and public choice theory don't have something important to offer. The mainstream knows that prices serve a coordinating function in society. They haven't really done much with the fact that the capital structure itself is a function of time and therefore determined by the interest rate. That's what Austrian economics can add. Don't tell us what we already know about market efficiency. It's both condescending and redundant. Public choice theory can teach the mainstream about distinctions between constitutional and political stages of public decision making. That's not widely thought about, but it's hugely important (particularly in a place like the United States). That's what public choice theorists can add. Don't tell us what we already know about political inefficiency. And for God's sake don't act like Buchanan's Cost and Choice was the first time anyone thought about opportunity cost! When you do that, not only do you sound condescending - you also sound ignorant of the literature.

My feeling is this. Any economist that doesn't embrace the idea that markets can screw up and are not the best of all possible worlds comes across (to me at least) as naive and a little immature. Any economist that doesn't embrace the idea that governments can screw up and are not the best of all possible worlds also comes across as naive and immature. And anyone that acts like either of those very obvious facts implies that:

(1.) the market is somehow bad or not an essential social institution, or
(2.) that the government is somehow bad or not an essential social institution

Seems to me, at least on first impression, to be guided by ideology rather than objectivity.

*Unless, of course, by "left-leaning economists" you mean actual Marxists. There are a few important examples of such people, but I think it's foolish to leverage those examples into some sort of representation of left leaning economists. Oskar Lange is an important guy, he played a big role in some mid-century debates... but he's no stand-in for your average left-leaning economist. The man is a Marxist and that's a different situation entirely. I'm talking about the community of classical liberal economists - they have not abandoned any of these points or insights.

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